Britain is as productive as France! (We just went on holiday)

Chris Giles has some cheerful news in the FT: Britain is apparently far less useless than we thought. For fifteen years economists have scratched their heads over why UK productivity growth collapsed, from roughly 2% a year before the financial crisis to 0.7% between 2009 and 2019, before slipping further still. Now the ONS thinks it has found a big part of the answer, and it's not lazy workers or rubbish management. It's the statisticians.

https://bsky.app/profile/did:plc:bixc6lwocvgb6rh5wdrk3lym

The problem, it seems, is holidays. When the Labour Force Survey knocked on doors and nobody answered, the ONS effectively assumed those people were at work rather than on a beach in Mallorca. Correct for the extra annual leave we've been taking and productivity growth comes out nearly twice as high, around 1.3% a year. We're not an international outlier after all, and it doesn't take us five days to do what the French manage in four. Happy days, says Giles.

Nice news, but it doesn't change your pay packet

I'm all for good news, but it's worth being clear about what has actually changed here: not very much. GDP is the same as it was last week. The economy hasn't produced a single extra widget. What's changed is the denominator: we now think the same output was produced in fewer hours.

That's good for national pride, and possibly for the Treasury's forecasts, but it doesn't put a penny in anyone's pocket. Real wages are tied to actual output per person, and that hasn't been revised. If anything the new figures tell us Britain has been quietly choosing more leisure over more stuff, which is a perfectly reasonable choice, but not exactly the growth miracle the headline suggests.

How sure are we about the holidays?

The other question is how much we should trust the fix. The ONS's new 'component' approach builds hours worked from several sources and adds explicit adjustments for annual leave, sickness, bank holidays and overtime. That sounds sensible, but some critics have pointed out that the holiday adjustment partly assumes people take roughly their full entitlement rather than measuring what they actually take. Swapping one dodgy number for an assumption isn't the same as finding the truth.

And even on the ONS's own account, the improved hours data explains about half of the productivity slowdown since 2008, not all of it. So the puzzle is smaller, but it hasn't gone away. Recent analysis from the Productivity Institute also suggests most of the apparent recent improvement in productivity comes from slower growth in hours rather than any acceleration in output. Again: the denominator doing the heavy lifting.

The bigger lesson: our data is a bit rubbish

For me the real story is less 'Britain is fine' and more 'Britain's official statistics have been wrong for over a decade and nobody noticed'. The Labour Force Survey has had serious response problems for years, and entire policy debates about the 'productivity puzzle' were built on numbers that were partly an artefact of who wasn't answering the door.

Final thoughts

So by all means raise a glass of something French. But I'd hold off on the victory lap. We haven't got more productive this week, we've just got a different estimate of how hard we were working. The hard part, actually producing more, is still waiting for someone to tackle it.

If anything the takeaway should be humility: when the ONS can rewrite fifteen years of economic history with a holiday adjustment, maybe we should be a little more cautious about the confident stories politicians and economists build on top of its numbers.